Freddie Mac 2014 Annual Report Download - page 156

151 Freddie Mac
To the extent the transfer of multiclass REMICs and Other Structured Securities qualifies as a sale, we de-recognize all assets
sold and recognize all assets obtained and liabilities incurred. Any gain (loss) on the sale of multiclass REMICs and Other
Structured Securities is reflected in our consolidated statements of comprehensive income as a component of other gains
(losses) on investment securities recognized in earnings. To the extent the transfer of multiclass REMICs and Other Structured
Securities does not qualify as a sale, we account for the transfer as a financing transaction and recognize a liability for the
proceeds received from third parties in the transfer.
Other Guarantee Commitments
In certain circumstances, we also provide a guarantee of mortgage-related assets held by third parties, in exchange for a
guarantee fee, without securitizing those assets. For example, we provide long-term standby commitments to certain of our
single-family customers, which obligate us to purchase seriously delinquent loans that are covered by those commitments. We
also provide guarantee commitments on multifamily housing revenue bonds that were issued by HFAs as well as guarantees
under the TCLFP on securities backed by HFA bonds.
Cash and Cash Equivalents
Highly liquid investment securities that have an original maturity of three months or less are accounted for as cash
equivalents. In addition, cash collateral that we have the right to use for general corporate purposes and that we obtain from
counterparties to derivative contracts is recorded as cash and cash equivalents.
Restricted Cash and Cash Equivalents
Cash collateral accepted from counterparties that we do not have the right to use for general corporate purposes is
recorded as restricted cash in our consolidated balance sheets. Restricted cash includes cash remittances received on the
underlying assets of our consolidated trusts, which are deposited into a separate custodial account. We invest the cash held in
the custodial account in short-term investments and are entitled to the interest income earned on these short-term investments,
which is recorded as interest income, other on our consolidated statements of comprehensive income.
Mortgage Loans
Upon acquisition, we classify a loan as either held-for-sale or held-for-investment. Mortgage loans that we have the
ability and intent to hold for the foreseeable future are classified as held-for-investment. Loans we acquire and which we intend
to securitize using an entity we will consolidate will be classified as held-for-investment both prior to and subsequent to their
securitization, in accordance with our intent and ability to hold such loans for the foreseeable future.
Held-for-investment mortgage loans are reported in our consolidated balance sheets at their outstanding UPB, net of
deferred fees and other cost basis adjustments (including unamortized premiums and discounts, delivery fees and other pricing
adjustments). These deferred items are amortized into interest income over the contractual lives of the loans using the effective
interest method. We recognize interest income on an accrual basis except when we believe the collection of principal and
interest in full is not reasonably assured. If the collection of principal and interest in full is not reasonably assured, we cease the
accrual of interest income and any interest income accrued but uncollected is reversed.
Mortgage loans not classified as held-for-investment are classified as held-for-sale. Held-for-sale loans are reported at
lower-of-cost-or-fair-value on our consolidated balance sheets. Any excess of a held-for-sale loan’s cost over its fair value is
recognized as a valuation allowance in other income on our consolidated statements of comprehensive income, with changes in
this valuation allowance also being recorded in other income. Premiums, discounts, and other cost basis adjustments recognized
upon acquisition on single-family loans classified as held-for-sale are deferred and not amortized. We elected the fair value
option for multifamily mortgage loans held for sale that we intend to securitize and sell to investors. See “NOTE 16: FAIR
VALUE DISCLOSURES — Fair Value Option — Multifamily Held-For-Sale Mortgage Loans” and “NOTE 16: FAIR VALUE
DISCLOSURES — Fair Value Option — Changes in Fair Value under the Fair Value Option Election.” Thus, these
multifamily mortgage loans are measured at fair value on a recurring basis, with subsequent gains or losses related to changes
in fair value reported in other income in our consolidated statements of comprehensive income.
Cash flows related to mortgage loans originally classified as held-for-investment are classified as either investing
activities (e.g., principal repayments) or operating activities (e.g., interest payments received from borrowers included within
net income (loss)). Cash flows related to mortgage loans originally classified as held-for-sale are classified in operating
activities.
Non-Accrual Loans
We place mortgage loans on non-accrual status when we believe collectability of principal and interest in full is not
reasonably assured, which generally occurs when a loan is three monthly payments past due, unless the loan is well secured and
in the process of collection based upon an individual loan assessment. A loan is considered past due if a full payment of
principal and interest is not received within one month of its due date. When a loan is placed on non-accrual status, any interest
income accrued but uncollected is reversed. Thereafter, interest income is recognized only upon receipt of cash payments.
A non-accrual mortgage loan may be returned to accrual status when the collectability of principal and interest in full is
reasonably assured. For single-family loans, we determine that collectability is reasonably assured when we have received
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